How to Convert PPF into a 5-Year Fixed Deposit?

The PPF to fixed deposit question majorly comes up whenever a recently retired individual wishes to open a new PPF account since the earlier one had already matured. He/she wished to do this although there was awareness about the lock-in period initially for PPF along with the long-term nature of the investment. However, most people think they do not have options in such situations.

PPF into a Fixed Deposit

In many cases, people are surprised to know that they can invest in fixed deposits for 5 years by converting their PPF upon maturity. The Public Provident Fund (PPF) is an instrument for savings and is quite popular with both the business and salaried classes. Over a period of 20 years, an annual contribution of Rs.1,50,000 could mature to more than Rs.68 lakh which is close to 45 times that of the annual investment made. This calculation assumes a rate of interest of 7.9% per annum. This rate is subject to changes every quarter and is not fixed. However, this assumption can give you a broader view of the sheer potential that PPF investments have. This capital can take care of several future needs including medical emergencies, retirement and children’s education.

Even though PPF is a 15-year investment scheme, the deposit can be extended for 5 years at a time. An investor can also withdraw up to 60% of the balance at the beginning of each extended period but only once per year. It is here where one should consider schemes for conversion of PPF into a 5-year Fixed Deposit. Let us assume that the term of a PPF account concluded on the 31st of March, 2017. The balance in the account is assumed to be Rs.15 lakh at the time. Now, choosing to continue for five more years (till 31st of March, 2020) is your prerogative. However, over this period of 5 years, you can withdraw just Rs.9 lakh which is 60% of the balance on the 31st of March, 2017.

However, what if you want to earn tax-free interest without any further investments? It is possible since in case the account is extended without making any contributions, you can withdraw any amount you want without restrictions even though a single withdrawal is possible every year. The balance amount will continue earning interest till it is fully withdrawn. NRIs can also invest in PPF provided this account opened prior to the person becoming an NRI. NRIs cannot open a new account or extend the scheme beyond maturity.

Several lenders are still unaware of these rules and there have been complaints regarding lenders unwilling to extend the PPF account and asking investors to close their present accounts and start fresh ones. NRIs also face problems when NRO cheque subscriptions are sometimes rejected, citing reasons that NRIs cannot invest in PPFs at all. However, going by the rule book does get these problems resolved. A little knowledge of PPF rules will help you overcome all teething problems if they arise and convert your PPF account into an FD of sorts where you can withdraw the amount once a year and extend your account for five years again.

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Arwind SharmaArwind Sharma a passionate writer on finance and closely associated with financial companies. He is still busy in discovering time-efficient finance schemes. To know more about Loan against